Incident: The company disclosed its 2023 annual report on April 9. In '23, the company achieved operating income of 1,412 million yuan (YOY = 0.60%) and net profit to mother of 237 million yuan (YOY = 7.20%). In addition, the company paid out 197 million yuan in dividends (corresponding dividend payment rate of 83.23%).
Revenue & net margin performance was stable, and gross margin showed a significant improvement trend. In '23, the company's revenue reached 1,412 billion yuan (YOY = 0.60%), gross margin increased by 3.37 pcts to 35.85% year on year (mainly the decline in raw materials and energy prices), and gross profit increased 11.05% year on year to 506 million yuan. In addition, the company's expense ratio increased by 0.33 pct to 16.23% year on year (including sales expense ratio decreased by 0.52 pct year on year, management expense ratio increased 0.55 pct year on year, and R&D expenses increased 0.27 pct year over year). Furthermore, income tax rate increased 0.82 pct year over year, so net profit to mother increased 7.2% year over year to 237 million yuan, corresponding net profit margin increased by 1.04 pct to 16.78% year on year.
Looking at 23Q4 alone, the company's revenue increased by 0.22% year on year, and gross margin decreased by 1.31 pct year on year, so gross profit decreased by 3.48% year on year. The overall cost rate increased by 4.60 pct during the period (sales cost rate increased by 4.18 pct, management cost ratio increased by 0.31 pct, R&D cost rate increased by 0.59 pct). Furthermore, the income tax rate decreased by 1.03 pct year on year, so net profit to mother fell 5.29% year on year (corresponding profit margin decreased by 5.29 pct year on year).
The East China market is weak, and we look forward to a positive recovery in the core market in 24 years. Looking at the regional performance in '23, the East China market was under pressure, down 3.61% year on year, and the central China/Southwest China market performed steadily, up 5.10%/3.51% year on year respectively. In addition, the South China market performed well, with a year-on-year increase of 22.03%. East China/Central China/Southwest China is an economically developed or densely populated province in China. The market still has plenty of room for exploration. We expect these market performance to pick up and improve in 24 years.
Omni-channel development and expansion are expected to drive growth. Looking at channels in '23, the distribution model increased by 0.57% year on year, and the direct sales model decreased by 4.41% year on year. Looking at changes in the number of dealers, the company had a total of 2,585 dealers at the end of '23 (624 new in '23, a decrease of 589).
In 2023, the company will continue to focus on the market in key markets, rapidly carry out omni-channel development and terminal network construction, focus on expanding channels for small restaurants, factories and mining enterprises, office buildings, and unit canteens, and increase the market penetration rate of this channel through targeted products. In emerging markets or newly developed market regions, the company focuses on building customer frameworks and key channel frameworks, promoting investment promotion for new customers, and quickly establishing channel networks to cultivate markets. We look forward to continued expansion of the company's new channels in the future to drive overall performance growth.
Profit forecasting and investment advice. We expect the company's revenue in 2024-2026 to be 1,580/18.14/2,030 billion yuan, respectively, and net profit to mother of 2.73/3.21/363 million yuan, respectively, and corresponding EPS of 0.69/0.81/0.92 yuan/share, respectively. Based on the valuation situation of comparable companies, considering the good performance, the company was given a PE valuation of 25-30 times in 2024, corresponding to a reasonable value range of 17.25-20.70 yuan/share, and continued to be given a “superior to the market” rating.
Risk warning. (1) Food safety risks, (2) downstream demand falls short of expectations, (3) market competition intensifies, (4) new products, new channels, and new market expansion fall short of expectations, and (5) fluctuations in upstream raw material cost prices and cost investment.